Section 50C provisions don't apply to tenancy rights cancellation, long-term capital gain addition deleted

The ITAT Mumbai held that provisions of Section 50C do not apply to addition made by AO on cancellation of tenancy rights. The assessee was a tenant who agreed to surrender tenancy rights for alternate accommodation under October 2016 agreement. Though stamp duty of Rs. 38.48 lakhs was paid on subsequent transfer deed dated 21/07/2017, the tribunal followed Abdul Aziz Abdul Kadar precedent and ruled that Section 50C provisions are inapplicable to tenancy right transfers. The AO's addition of long-term capital gain was deleted and appeal was allowed.

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Issues:
1. Addition u/s. 50C of the Act on cancellation of tenancy rights.
2. Application of Section 50C of the Income Tax Act on transfer of tenancy rights.
3. Interpretation of the term "capital asset" under Section 2(14) of the Income Tax Act.
4. Determination of capital gains on surrender of tenancy rights in exchange for ownership flat.

Analysis:
1. The appeal was against the addition of Rs. 38.48 lakhs u/s. 50C of the Act on cancellation of tenancy rights. The AO added this amount to the income of the assessee as long-term capital gain. The assessee argued that no capital gains arose as alternate accommodation was not provided. The Counsel cited the High Court's decision that Section 50C does not apply to transfer of tenancy rights.

2. The Tribunal examined the facts and agreements related to the transfer of tenancy rights. It was noted that no alternate accommodation was provided to the assessee in the impugned year, leading to no transaction being reported by the registering authority. The Tribunal referred to the High Court's decision, stating that Section 50C does not apply to the transfer of tenancy rights.

3. The case of Mrs. Shirinbai P Pundole was analyzed concerning the surrender of tenancy rights for an ownership flat. The Tribunal held that the tenancy did not constitute a capital asset under Section 2(14) of the Act. The transaction of surrendering tenancy rights did not attract capital gains tax under Section 45 of the Income Tax Act.

4. The Tribunal considered the decision of the Hon'ble High Court regarding the interpretation of Section 50C in the context of transfer of tenancy rights. It was held that the provisions of Section 50C do not apply to the case at hand. The AO was directed to delete the additions made. Additionally, it was noted that if the transaction concludes in subsequent years, the AO is free to take action as per the law at that time.

In conclusion, the Tribunal allowed the appeal, directing the AO to delete the additions made under Section 50C. The decision was based on the interpretation of relevant legal provisions and previous judgments by the High Court regarding the transfer of tenancy rights and the applicability of capital gains tax in such cases.

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